- CFA Exams
- CFA Level I Exam
- Study Session 16. Derivatives
- Reading 49. Basics of Derivative Pricing and Valuation
- Subject 7. The Value of a European Option at Expiration

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**CFA Practice Question**

When the underlying stock price is $95, an investor pays $2 for a call option with an exercise price of $95. If the stock price moves to $96, the intrinsic value of the call option would be closest to ______.

A. $0

B. $1

C. $2

**Explanation:**The intrinsic value of a call option is the stock price less the strike price if that difference is positive, and zero otherwise. The stock trading at $96 can be purchased for $95, so the intrinsic value is $1.

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**User Contributed Comments**
2

User |
Comment |
---|---|

jatins21 |
got it |

CFANathan |
Nods head |